By Jonathan Collins Yesterday at the antitrust trial in Washington, Microsoft counsel, Rick Pepperman, returned to evidence and testimony presented by government witness Garry Norris, an IBM Corp mid- level manager, in an effort to refute many of his serious allegations. One of the most damaging was the quote from the IBM OEM contact at […]
By Jonathan Collins
Yesterday at the antitrust trial in Washington, Microsoft counsel, Rick Pepperman, returned to evidence and testimony presented by government witness Garry Norris, an IBM Corp mid- level manager, in an effort to refute many of his serious allegations. One of the most damaging was the quote from the IBM OEM contact at Microsoft, Mark Baber. On Monday Norris testified that when negotiating new licensing agreements with Microsoft, Baber told him: Where else are you going to go? This is the only game in town.”
Pepperman returned to those licensing negotiations, which would group all Microsoft’s operating software products under one deal. In April 1996, Microsoft proposed raising IBM’s license fee for the Windows 3.1.1 operating system, by now superseded by Windows 95, to $62 from the $9 it had been previously. Norris had testified that IBM was forced to agree to the deal because Microsoft said it was the only way it would give IBM access to the upcoming Version 4.0 of Windows NT and Windows 95 and its related marketing programs worth around $75m to the company.
Pepperman pointed out that although that may have been Microsoft’s opening negotiation position, by the time the deal was signed in August 1996 IBM had won a reduction in the Windows 3.1.1 price, which meant it would pay around $19 per copy by the end of 1996 rather than the $62 first asked for by Microsoft. That’s pretty good negotiating with ‘the only game in town’ quipped Pepperman. Yes, replied Norris, we managed to keep it down to just double the previous price.
Pepperman also tried to discredit Norris’s handwritten notes taken in meetings with IBM in February and March. The notes, presented some one the strongest first-hand testimony of Microsoft’s attempts to use its monopoly power to drive Netscape Communications Corp out of the browser market – the key focus of the antitrust case against Microsoft. The notes had revealed comments made in a secret meeting held with IBM at Microsoft’s request. At the meeting in March 1996, Microsoft executive Bengt Ackerlind offered IBM a deal, that if it would agree to bundle Internet Explorer 4.0 exclusively – pushing out Netscape’s Navigator browser, Microsoft would give IBM a significant reduction in license costs for Windows 95 on its consumer machines, said Norris. The reduction would see IBM paying less than $10 per license – at the time the retail price was $220. According to Norris’s testimony, Microsoft also wanted IBM to take all rival applications of its PCs and replace them with Microsoft versions. Norris had testified that IBM rejected the deal.
Yesterday, Pepperman produced an internal IBM email from Dean Dumbinsky, who worked for Norris and who was also at the meeting. The email provided a summary of the secret meeting. However, in the email there was no description of the exclusive Internet Explorer deal. Pepperman asked if this was because the notes taken by Norris were incorrect. Norris replied that when he received that email from Dumbinsky, he had called Dumbinsky and asked why the deal was not mentioned. According to Norris, he was told that the issue was one between Norris and his boss ‘Ozzie’ Osborne and that Dumbinsky didn’t want to be involved.
According David Boies, who leads the governments case, the reason Dumbinsky did not mention the deal was obvious. Microsoft had explicitly said to keep the meeting secret. It is not the kind of thing put in emails because everyone knew it was a violation of the antitrust laws, Boise said outside the courtroom.
Another focus of Norris’s testimony had been the repeated restrictions Microsoft placed on IBM because it offered a rival operating system to Windows, OS/2. The restrictions were outlined in the Microsoft Market Development and support Agreement (MDA), an agreement which must be renegotiated each year and sets out what measures OEMs can take to win a reduction in the licensing fee paid to Microsoft.
Norris had already testified that Microsoft repeatedly told him that when Microsoft stopped competing with OS/2, it could win larger discounts from Microsoft. Yesterday, Pepperman tried to show that the agreements never stipulated that IBM must reduce, drop or eliminate its sales of OS/2. Norris agreed, but said that some of the contract agreements if IBM had subscribed to would have killed off OS/2.
Norris pointed out that such demands such as making Windows the standard platform on IBM PCs, as well as offering incentives to only advertise the Windows logo and not the OS/2 brand, amounted to killing off OS/2 in return for lower royalty payments to Microsoft. There were several provisions in it, for example, that would have required us to reduce or eliminate our shipments of OS/2, said Norris. He added that the MDA also leaves final decision on whether IBM applies to the license savings to Microsoft. It is up to the discretion of Microsoft whether we meet the milestones, he said, adding that he knew that what Microsoft meant explicitly was that to meet the milestones IBM would have to drop OS/2 because that is what they told me he said.
Microsoft concluded its examination of Norris by having the witness agree that although Microsoft is alleged to have tried to entice IBM to not ship rival software such as Lotus SmartSuite and Netscape Navigator on its PCs, IBM has been able to do so while still licensing the Windows 95 operating system at a price that still included significant discounts. á